Category Archives: finance

George Parker of the Financial Times reported on the content of a video by Labour leader Jeremy Corbyn, watched almost 300,000 times in 24 hours on Facebook.

Corbyn sees the collapse of Carillion, the company responsible for everything from building hospitals to providing school meals, as a “watershed” moment that proves that the private sector should not be running swathes of Britain’s public services. More here.

The revolution in outsourcing public services was started by Margaret Thatcher and continued by New Labour under Tony Blair. Since 1980 public services — from providing school meals to refuelling RAF aircraft — have been outsourced to the private sector. Questions have been about whether the taxpayer is getting best value for money from some contracts, listed here. There is more on unsafe PFI hospitals and collapsing PFI schools here.

Should PFI schemes and outsourcing be ended under Labour? There is a substantial body of opinion that, though much of the criticism of PFI is justified, and relevant to the debate on outsourcing, this would be a mistake.

The FT points put that the big driver of PFI has long been the desire to keep debt off the government’s balance sheet. A correspondent agrees with this: “Certainly, otherwise Tony Blair and Gordon Brown would have been accused of profligacy, whereas using PFI allowed them to be popular in the short term whilst transferring the problem to future generations”.

The civil service, according to the FT, is often very bad at specifying what it wants and managing contracts – our correspondent adds: “Because they change their minds part way through!!”

Both agree that the processes for assessing the value of PFI projects, monitoring projects and evaluating PFI’s overall performance must become more rigorous.

Reports from the National Audit Office and the Public Accounts Select Committee indicate that successive governments have indeed been accepting unrealistically low bids, leading to inadequate levels of staffing. The Times this week quoted from a report issued by Balfour Beatty that in future it needs to move away from the position where fixed-price contracts, risk transfer and lowest-cost tendering are the norm.

Should hospitals, schools, prisons etc be built with cheap and flexible funding from the Public Works Loan Board? This arm of the Treasury has been helping to finance capital spending by local government since 1793. Its interest rates, linked to those in the gilt-edged market, have been at exceptionally low levels since the financial crisis of 2007-08.

The FT reports that senior executives at several of the largest US banks have privately told the Trump administration they feared the prospect of a Labour victory if Britain were forced into new elections.

It then referred to a report by analysts at Morgan Stanley arguing that a Corbyn government would mark the “most significant political shift in the UK” since Margaret Thatcher’s election and may represent a “bigger risk than Brexit” to the British economy. It predicted snap elections next year, arguing that the prospect of a return to the polls “is much more scary from an equity perspective than Brexit”.

Jeremy Corbyn gave ‘a clear response’ to Morgan Stanley in a video(left) published on social media reflecting anti-Wall Street rhetoric from some mainstream politicians in the US and Europe, saying: “These are the same speculators and gamblers who crashed our economy in 2008 . . . could anyone refute the headline claim that bankers are indeed glorified gamblers playing with the fate of our nation?”

He warned global banks that operate out of the City of London that he would indeed be a “threat” to their business if he became prime minister.

He singled out Morgan Stanley, the US investment bank, for particular criticism, arguing that James Gorman, its chief executive, was paying himself a salary of millions of pounds as ordinary British workers are “finding it harder to get by”.

Corbyn blamed the “greed” of the big banks and said the financial crisis they caused had led to a “crisis” in the public services: “because the Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity”.

The FT points out that donors linked to Morgan Stanley had given £350,000 to the Tory party since 2006 and Philip Hammond, the chancellor, had met the bank four times, most recently in April 2017. The bank also had strong ties to New Labour: “Alistair Darling, a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007”.

A step forward?

In a December article the FT pointed out that the UK lacks the kind of community banks or Sparkassen that are the bedrock of small business lending in many other countries adding: “When Labour’s John McDonnell, the shadow chancellor, calls for a network of regional banks, he is calling attention to a real issue”. And an FT reader commented, “The single most important ethos change required is this: publish everyone’s tax returns”:

In Norway, you can walk into your local library or central council office and see how much tax your boss paid, how much tax your councillor paid, how much tax your politician paid.

This means major tax avoidance, complex schemes, major offshoring, etc, is almost impossible, because it combines morality and social morals with ethics and taxation.

We need to minimise this offshoring and tax avoidance; but the people in control of the information media flow, plus the politicians, rely on exactly these methods to increase their cash reserves.

But first give hope to many by electing a truly social democratic party.

Accounting professor Prem Sikka received the Abraham Briloff award from The Accountant and International Accounting Bulletin at a conference and awards dinner in London on 4 October – The Digital Accountancy Forum & Awards 2017.

The award is named after Abraham Briloff (19 July 1917 –12 December 2013) who would have been 100 this year.

Abe was a professionally qualified USA accountant and accountancy professor who gained fame through his prolific writing and fierce criticism of malpractice within the profession (left).

He called upon the profession to act ethically and argued that in return for enormous social privileges and status, it must have a genuine commitment to society and be able to “see beyond the numbers” as he told The Accountant in an interview in 2013 a few months before his death.

Sikka is emeritus professor of accounting at the University of Essex, which he joined in 1996. Before that he worked at the University of East London between. He qualified with ACCA in 1977 and held various accounting positions in industry and commerce before committing to a career to academia.

In 2003, Sikka helped the launch of the Tax Justice Network and is now one of its senior advisers (unpaid).

He has advised and given evidence to the EU and UK parliamentary committees.

Most recently, he was an adviser to the UK House of Commons Work and Pensions Committee for its investigation into BHS and related pension matters.

His research on accountancy, auditing, corporate governance, money laundering, insolvency and business affairs has been published in books, international journals, newspapers and magazines.

Sikka was given the award for his extraordinary contribution in promoting transparency and public accountability of businesses

This award recognises the work of an individual who has sought to improve transparency and accountability by asking the hard questions and questioning the dominant apparatus of truth, recognising that accountancy goes beyond debit and credit to subsume a broad canvas of disciplines involving the liberal arts and sciences. This recognises that accounting is a moral and political practice rather than a technical one.

The Accountant and International Accounting Bulletin editor Vincent Huck said: “No one other than Prem Sikka fits the bill better to receive an award named after Abraham Briloff. Not only do they share a common set of ideas, but they have the same insatiable drive and passion in promoting them. The accountancy profession and professionals often boast of occupying a moral high ground and claim that they act in the ‘public interest’, but such claims are now increasingly met with public scepticism. Rather than addressing the criticism, professionals have often been too quick to dismiss it, even when it comes from their own ranks. The profession needs to nurture its critics as, ultimately, a profession is only as good as its critics.”

The UK Shadow Chancellor of the Exchequer John McDonnell presented the award to professor Prem Sikka. He said: “It’s an honour to be asked to present this for someone who I think will be long known for the work that he’s done and laying the foundation of a fair, just, open and transparent tax system.” He praised Sikka for his role in setting up the Tax Justice Network in 2003 at a time when people where not necessarily interested in tax avoidance and evasion and for his contribution as an advisor to the House of Commons select committees, various individual MPs, the Labour party as well as other parties.

“Many of the policies that we are advocating at the moment are based on the work that Prem has done over the years,” McDonnell said, including:

The importance of opening up the books,

the importance of having a register of beneficial interest and

the importance of having an effective HMRC.

The Shadow Chancellor added that Sikka and his team have just undertaken a review of the HMRC and the resources that they need to ensure that there is an effective tax operation within this country, ending:

“And much of the legislation that you will see us promoting in parliament, often on all sides of the house, will be done as a result of the work that he’s done and the advice that he’s given us as to how we can establish fairness and transparency within the tax system.”

Colin Hines, convenor of theUK Green New Deal Group, comments on the Guardian’s recent editorial on productivity and robots which ‘repeated the cliché that automation does cost jobs, but more are created’.

He says that the problem with this is that the new jobs are frequently in different places from where they are lost and require very different skills, hence exacerbating the problems for the “left behind”.

Also unmentioned was that just as automation is starting to really bite, the world faces a strong possibility of another serious credit-induced economic downturn, from China to the UK and a perfect storm of domestic unemployment soaring and export markets falling, as happened after the 2008 economic slump.

The answer to these problems has to be a shift of emphasis to rebuilding the local economy by prioritising labour-intensive sectors that are difficult to automate and impossible to relocate abroad.

Two sectors are key:

face-to-face caring from medicine, education and elderly care

carbon-reducing national infrastructural renewal.

This should range from making the UK’s 30m buildings energy efficient, constructing new low-carbon dwellings and rebuilding local public transport links.

Funding could come from fairer taxes, local authority bonds in which all could invest, green ISAs and a massive new green infrastructure QE programme.

This approach should become central to all political parties, set out in their next election manifestos because “jobs in absolutely every constituency” is the crucial vote-winning mantra.

Rupert Read, Chair of the Green Housethinktank, described Colin Hines’ new book as a ‘feisty clarion call’ to greens and ‘the Left’ – and, we add, small ‘c’ conservatives.

It calls for a change of direction: away from acquiescence in the trade treaties which shaped the deregulated world that spawned the financial crisis — and toward protection of nature, workers, localities and national sovereignty, as the key locale where democracy might resist rootless international capital.

Progressive protectionism’ is completely unlike the ‘protectionism’ of the 1930s, that sought to protect one’s own economy while undermining others; this by contrast is an internationalist protectionism, aimed, “at reducing permanently the amount of international trade”, and making countries around the world more self-reliant/resilient. ‘

Read believes that too many ‘progressives’ have sleepwalked into tacitly pro-globalisation positions incompatible with protecting what we most care about.

And partly because of this, a new political power is rising that threatens to trash the future: The Brexit vote and (in particular) the election of Donald Trump have restored the word ‘protectionism’ to the popular political vocabulary.

Hines argues that we need totake back protectionism from the Right. He means that only policies of progressive protectionism can make real the idea of “taking back control”. Read thinks that’s right. If we embrace progressive protectionism, we’ve something better to offer the voting public than they have.

The chapter on ‘free movement’ will be the most controversial of all. Hines (Ed: rightly) points out that countries such as Romania and the Philippines are being stripped bare of their medical personnel, and argues that no decent internationalist can support this sucking out of ‘the brightest and the best’ from their home countries.

We can take control of the agenda, rationally and seek to minimise such movement; for example by helping to make conditions better in home countries, tackling dangerous climate change, stopping foreign wars of aggression, encouraging ‘Site Here to Sell Here’ policies everywhere, and bringing back capital controls which helped the world prosper safely from 1947 till 1971 (and which certain countries, such as Iceland, have already brought back).

Capital controls are crucial, because they stop the threat of relocation which multinationals have used to ‘discipline’ democracies for too many years now (Ed: and capital can then be reinvested in the communities from which that capital was accrued).

Hines argues that the Treaty of Rome needs transforming into a ‘Treaty of Home’ that will allow peoples to protect what they hold dear – and Read thinks politicians on the Continent need to read his book if they are to prevent further exits, starting possibly with France. Read ends:

“This book is a necessary read. Perfect it ain’t; it’s slightly repetitive, and there are problems of substance too: most Resurgence readers will (rightly) dislike how soft Hines is on economic-growthism, and will wish that he were readier to embrace the post-growth future that is demanded by the acceptance that we are already breaching the limits to growth.

“But if there is to be a future, then progressive protectionism will surely be part of it. This book is crucial thought-leadership for us, away from the political dead-end of globalisationist fantasy, and toward a localisation that can transform the debate – and then the world”.

Richard Murphy and Colin Hines published the Green QE report, which is summarised below.

In March 2009 the Bank of England began a programme of quantitative easing in the UK – in effect, the Bank of England granted the Treasury an overdraft but to keep the European Union happy had to do so by buying Government gilts issued by the Treasury from UK commercial banks, pension funds and other financial institutions.

There were three reasons for doing this:

To keep interest rates low;

To provide banks with the money they needed to lend to business and others to keep the economy going.

To make sure there was enough money in the economy to prevent deflation happening

No one was sure whether quantitative easing would work, and as we note, no one is sure for certain whether it has worked.

We do however suggest in this report that several things did happen:

The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash– and bankers’ bonuses never went away;

The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme. If you wanted to know how the government met its costs, now you do; There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals.

The USA also undertook quantitative easing at the same time as the UK, which meant that despite near recessionary conditions commodity prices for coffee and basic metals such as copper have risen enormously. This has impacted on inflation, which has stayed above the Bank of England target rate;

Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government’s reflation policies is unclear;

Interest rates have remained low.

However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined almost steadily since the quantitative easing programme began.

there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need in this country and there is no sign that this will happen without government intervention.

For that reason we propose a new round of quantitative easing –or Green QE2 as we call it.

Green QE2 would do three things. First it would deliver the Green New Deal – the innovative programme for investment in the new economy the UK needs as outlined by the Green New Deal group in its reports for the New Economics Foundation. This would require three actions:

The government would need to invest directly in new infrastructure for the UK.

The government needs to invest in the UK economy, in conjunction with the private sector, working through a new National Investment Bank;

The government must liberate local authorities to partner with the private sector to green their local economies for the benefit of their own communities, and it can do this by providing a capital fund for them to use in the form of equity that bears the residual risks in such projects.

A second round of quantitative easing should involve direct expenditure on new infrastructure projects in the UK.

For example there is a desperate need for new energy efficient social housing in this country, for adequate investment in railways, not to mention a reinstatement of the schools rebuilding programme. Undertaking these activities would give the economy and immediate shot in the arm as well as providing infrastructure of lasting use which would more than repay any debt incurred in the course of its creation.

This is the result of the ‘Keynesian multiplier’ effect. This is the phenomenon that occurs when government borrowing to fund investment takes place during a time of unemployment.

That borrowing directly funds employment.

That new employment does four things.

First it reduces the obligation to pay benefits.

Second, it means that the person in that new employment pays tax.

Third, it means their employer pays tax on profits they make.

And finally the person in employment can then save, which means that they help fund the government borrowing which has created their own employment.

As Martin Wolf, the eminent Financial Times columnist has said in this FT video: “Borrowing is no sin, provided we use the funds to ensure that we bequeath a better infrastructure to the future”.

This is what we believe the programme we recommend would do and this is precisely why it is appropriate to do it now when the cost of government borrowing is so low, a point Wolf and Skidelsky also make.

Borrowing now to spend into the economy is the basis for the first stage of Green QE2 – and of the Green New Deal.

Looking back through a Facebook page I saw with great regret that Professor Doreen Massey had died in 2016. After hearing her speak on Radio 4, I read her book, World City, Polity, 2007, and we corresponded by email several times. I think this photograph shows her warm and lively personality.

Yesterday, following input about ‘shrinking cities’ on WMNEG’s website, and as a belated tribute, some points made in that book will now be shared, selected from five pages of notes made at the time. Several references are relevant to the Grenfell Tower disaster.

Extracts

In the world as a whole big cities are increasingly dominant and central to globalisation: the shining spectacular projects and the juxtaposi­tion of greed and need reflect their market dynamics.

The World Bank, one of the institutions whose policies have contributed to this massive flow of people into cities, has argued that it is through competitive cities that nations as a whole can develop.

Global cities are defined by their elite – the rest are invisible.

London is a political, institu­tional, economic and cultural power. Its influences and its effects spread nationally and globally but it increasingly overshadows everywhere else. National government policy accepts and also feeds its voracious growth.

Forces in the financial City took the lead in advocating and developing the deregulation that lies at the heart of globalisation; it is a command centre, place of orchestration, and significant beneficiary of its continuing operation.

Despite talk of `national sovereignty’, the first thing Margaret Thatcher did on coming to power in 1979 was to lift restrictions on for­eign currency exchange, to be followed in the mid-1980s by the deregulation of the City (the so-called Big Bang). A whole gamut of deregulatory and commercialisation policies, in pensions, housing, health care and education consid­erably increased the market for City activities.

Thatcherite policies benefited the private sector, financial services, the middle classes, London and the South East at the expense of the public sector, manufacturing, the old industrial regions and the working classes.

The colonisation by private capital of industries and services formerly provided by government – the utilities under Thatcher and Major, signifi­cant parts of the welfare state, especially health and education, under Blair – led to London’s reinvention and resurgence.

Policies of competitive individualism and individual self-reliance have been promoted – people have been encouraged/required to take much greater financial responsibility for their own housing, pen­sions, health care and education. Previous notions of mutuality have been abandoned and the idea of the public good has been system­atically undermined.

The world’s biggest interna­tional financial centre

From the mid-1960s the City took advantage of an offshore status manufactured by British taxation policy . . . and became an off­shore extension of New York, creating a major market in eurodollars which now makes it the world’s biggest interna­tional financial centre. It has been a lucrative subservience, for some: out of this that the new elite has been born.

The emergence of the new elite includes those involved in business services as well as finance: real estate, renting and business activities. Advertising, research and development, accounting, auditing and taxation, legal serv­ices, market research and consultancy, personnel recruit­ment, renting of machinery and technical consulting, investigation and security have grown rapidly as part of London-global-city.

For the ultra-rich few, this country is now a vir­tual tax haven and princes, tycoons and oligarchs are making it their home. Others are attracted by the lucrative opportunities in the City – more than one in 10 professional staff in the City of London come from coun­tries outside the EU and the US, including the plunderers of Eastern Europe and the old Soviet Union. A report on French people working in the UK found 69% of them in London and half of those are working in finan­cial services in the City.

The pattern of British chief executives’ pay is now openly modelled on the American lead

Directors paid 113 times more than the average UK worker in 2005 are awarding each other their increments. Over the last five years the average salary of a chief executive in Britain’s leading companies, including bonuses, has more than doubled, just as American remuneration has grown – bearing little relationship to company performance. This has resulted in levels of inequality far higher than in the major economies of continental Europe.

Such high salaries make London the most unequal city, and London and the South-East the most unequal region in the UK.This inequality of the extremes is character­istic of the `Anglo-Saxon’ version of neoliberalism and it is growing.

The exuberant, champagne-swilling claim of the success of London’s reinvention is, however, almost always hedged about with a regretful caveat – `but there is “still” poverty too’. The success and the poverty of London are the com­bined outcome of politico-economic strategies, establishing a two-tier society, corporate greed and the privatisation of need in the capital and at national level.

Some facts are indisputable. Inequality between rich and poor, the glaring starkness of class difference, is more marked in London than anywhere else in the country

Unemployment in Inner London is higher than in any other subregion in England, while Outer London hovers around the national average; on almost any index there is an enormous geographical variation between boroughs.

London has the highest incidence of child poverty, after housing costs have been taken into account, of any region in Great Britain.

The gender pay gap is wider in London than in Great Britain. London has local authority areas with both the highest and the lowest rates of means-tested benefit receipt in the country.

Nearly a quarter of London’s children (24 %) are living in households dependent on Income Support’ whilst the rate for Great Britain as whole is 16 %, and London’s rate is the highest of any region.

Poverty is common among pensioners, too; in Inner London, a quarter of people aged sixty and over are on Income Support – only 15 % in Outer London and in Great Britain.

Homelessness and overcrowding are higher in London than elsewhere. The differ­ence in life expectancy, is stark even between the boroughs of London.

On average, women in Kensington and Chelsea live nearly six years longer than women in Newham; and men in Kensington and Chelsea (again) live nearly six years longer than men in Southwark .

People are trapped in poverty because of the high cost of living, and the cost of getting to work Those currently dependent on benefit find that loss of entitlement to benefits, particu­larly housing benefits can com­pletely erode gains from entering employment. The higher cost of housing, transport and childcare are important factors in explaining the pattern of disadvan­tage in the city.

Within the UK the old ‘North-South divide’ has widened and has increasingly taken the form of an ever-­expanding London versus the rest of the country

The New Labour government & London-centred private capital share an understanding of London/the South-East as the golden goose of the national economy – the `single driver’ of the national economy – which lays golden eggs for everyone.

There is an insistence that encouragement to `the regions’ must in no way be allowed to challenge, question, or in any way restrain the growth in London and the South ­East of England. Her Majesty’s Treasury, in a joint document with the Department of Trade and Industry, argued that `attempts to address regional differentials must be done by a process of levelling-up, not levelling down … whilst regional economic policy must aim to strengthen the indigenous growth potential of all regions, the focus should be on the weakest regions, without constraining growth in the strongest’ .

Brain drain

London’s growth over recent years and as planned for the future, requires labour with degree-level qualifications. It is demand for this kind of labour that dominates the net increase in employ­ment in the capital. London does not provide all of this and in consequence draws in professional people from abroad and from the rest of the country.

Many workers come from Eastern Europe and the global South. London is dependent, for instance, on nurses from Asia and Africa. These countries can ill-afford to lose such workers, and they have paid for their training. So India, Sri Lanka, Ghana, South Africa are subsidizing the reproduction of London. It is a perverse sub­sidy, flowing from poor to rich. It is, moreover, a flow that is both fuelled and more difficult to address as a result of the increasing commercialisation/privatisation of health services.

It is a brain drain that has a double effect. In London the dominance of demand for this kind of labour makes it more difficult for Londoners without those qualifications to find work and, through the influx of higher ­paid workers, increases the pressure on prices and therefore inequality within the capital. From the regions and nations of the North and West it drains a stra­tum of the population that could be significant to their eco­nomic growth.

(Yet) Gordon Brown has told the regions that their regeneration should be led by the knowledge economy and Alan Johnson, when minister for manufacturing, repeated the refrain that low skills are part of the regions’ problems. In other words, the regions are blamed for the losses they incur through feeding London’s demand.

Arguments that London is a ‘successful’ region which must not in any way be chal­lenged rest on a crucial assumption. This is that London has achieved its present position through its own efforts. As the hegemonic terminology has it: to do anything to disturb London’s trajectory would be to buck market forces.

London’s transnational financing and service-providing roles have not, however, been the main driver underlying the city’s growth since the 1980s, nor do these functions represent the major ele­ment of London’s export base. London’s main export market is in fact the `rest of the UK’ (RUK) which takes 28.5 % of all London’s exports, compared with 12.33 % going abroad. For financial services, the comparable percentages are RUK 39.88 % and interna­tional 31.46 % and, for business services, RUK 32.89 % and international 12.08 %.

This data contradicts the notion that London, in eco­nomic terms, is floating free from the rest of the UK econ­omy into an international arena of its own. It directly contradicts the conclusion that in a globalised economy London does not need the markets of northern Britain. As a London School of Economics study puts it, `the London economy is still closely integrated with the overall UK econ­omy’.

Despite the facts, however . . . there is also some resentment: an argument that London has been subsidising the rest of the country and can afford to do so to the same extent, voiced in a report for the London Chamber of Commerce and Industry (LCCI) entitled The London deficit – a business perspective provides an example:

The London economy is the largest and most successful regional economy in the UK. It has often been suggested that its success has been to the detriment of other UK regions, drawing highly skilled people away from other areas. The reality is more complex. As will be seen from this report, the UK’s progressive taxation structure ensures that London contributes a greater proportion of total income raised from taxation in the UK than any other region. In short, London subsidises the rest of the UK, enabling the nation as a whole to benefit from the capital’s success.

The fig­ures for London, however, usually include expenditure on the bulk of the national Civil Service. But this service operates over the country as a whole and should not appear on London’s balance sheet. The presence of so many Civil Service jobs and functions within London also contributes significantly to London’s economic growth and helps to influence the drawing up of national economic policy.

From Doreen Massey’s conclusion: “In the United Kingdom, London increasingly overshadows everywhere else and government policy has been to acquiesce in and feed its voracious growth. Is this what we want? The question is rarely heard in democratic debate”.

–

This book followed her pamphlet advocating Decentering the Nation: a radical approach to regional inequality, written with Ash Amin and Nigel Thrift, Catalyst 2003, on which notes also were made.